Housing on Tap for Wharf

Wood Wharf will be built on a 20-acre lot adjacent to Canary Wharf.
Canary Wharf Group

By

Douglas Miller

Jan. 1, 2013 6:24 p.m. ET

Canary Wharf and many of the bankers, lawyers, publishers and other professionals who work in that London financial hub could soon be seeing a lot more of each other.

Canary Wharf Group, the developer of more than 16 million square feet of office space on those former East London docklands, plans to develop Wood Wharf, a 20-acre parcel to Canary Wharf's immediate east that will include significant amounts of high-end residential space.

Canary Wharf in 20 years has grown to be a major adjunct to the City of London central financial district, with nearly 100,000 people now working there. Credit Suisse Group AGCS0.03% takes up all or part of four buildings on the wharf, and J.P. Morgan ChaseJPM-0.74% & Co. and the Barclays Capital unit of Barclays PLC each take up three.

A recent influx of nonfinancial companies has pushed the percentage of actual financial workers on the wharf below 50%, but they still outnumber those in the City, according to Russell Taylor, a director of Sotheby's International U.K.

One challenge for the area has been housing. There is almost no residential presence there.

Canary Wharf Group's plans for Wood Wharf, currently a cluster of warehouses, will include apartments with easy access to the wharf's 240 shops and restaurants and an Underground station that serves the Jubilee line and the Docklands Light Railway. Further, the east-west Crossrail train line, scheduled to open in 2018, will stop at Canary Wharf and promises to make the journey to Heathrow Airport in about 40 minutes.

Like lower Manhattan in the 1980s, Canary Wharf will have to find its own way as a residential neighborhood. Apartment buyers—particularly wealthy ones—tend to prefer desirable residential neighborhoods over untested frontier ones.

The overall housing market is, for the moment, cooperating. "London properties have seemed to hold their prices through the recession," said Greg D'Almeida, the East London area manager for Alex Neil real estate.

If the industrial look of Wood Wharf doesn't immediately present well, the same was also true of Canary Wharf just 30 years ago: Before the office towers arrived, the primary tenants were rats.

The wharf's tradition as a crucial London business hub dates to its construction in 1802. Goods from around the world once passed through its docks. The wharf proved to be too small for modern ships, however, and by 1980 the docks were abandoned and the land was in the hands of the government.

Prime Minister Margaret Thatcher in 1987 enlisted Olympia & York, the Canadian developers behind New York's World Financial Center, to rehabilitate the area. The timing was unfortunate. When One Canada Square opened on Canary Wharf in 1991 as the then-tallest building in the U.K., a global recession had taken hold. Within a year of that, Olympia & York was operating under bankruptcy protection.

Canary Wharf Group was born of the bankruptcy, and the project's original manager, a Romanian-born engineer named George Iacobescu, went on to become its chief executive, a title he has held since 1997. He also holds the honorific Sir George, bestowed by the Queen in 2012.

Canary Wharf had about 5.5 million square feet of office space before the expansion of Jubilee line through the area in 1999. "Really, for the other 10 million square feet to get built and get occupied, the Jubilee line was pretty important," said John Garwood, company secretary for Canary Wharf Group and its majority owner, Songbird Estates.

He estimated that the overall office-vacancy rate of Canary Wharf is 6% to 7%. Canary Wharf Group owns about seven million square feet of wharf space, and the vacancy rate for its properties is 3.5%, Mr. Garwood said. The retail portion of Canary Wharf is fully leased, he said.

About 70% of Canary Wharf Group is owned by Songbird, whose only assets are its Canary Wharf Group shares. Morgan StanleyMS-1.17% controls about 8% of Songbird, which battled Olympia & York founder Paul Reichmann in the early 2000s for control of Canary Wharf Group. Canadian developer Brookfield Property Partners, a recent real-estate spinoff of Toronto-based Brookfield Asset Management, owns 23% of Canary Wharf Group.

The group gained the rights to develop Wood Wharf in January 2012. It has planning approval to add a total of 10 million square feet to the area, including 4.7 million square feet for the Wood Wharf project, and three more towers on Canary Wharf itself. The ambition is to double Canary Wharf's workforce to 200,000 by 2025.

Canary Wharf Group said it would let the market decide what portions of Wood Wharf will become residential and commercial, based on demand. It said financing won't be determined until the company knows the actual makeup of the space. Mr. Garwood said the company recently has gotten financing through construction loans.

Condos are planned for the residential part, though the developer said it could include "long-term rentals"—one- and two-year rentals targeted, for example, at foreign bankers working at Canary Wharf on yearly contracts.

Some independent real-estate brokers said one current drawback to the residential plans is the local schools. There are public schools in the neighborhoods to the north and south, but Greenwich, to the immediate south, is more of a tourist area, and north of the wharf is London's working-class East End. The buyers that the developer will be targeting probably would be looking for private schools, but there aren't many in that part of London.

The project is expected to be developed over 10 to 12 years, with the first phase starting in 2014. Part of the development is expected to be open in time for Crossrail trains stopping at Canary Wharf in about five years.

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